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SUBMISSION: Inquiry into Residential Strata Title Insurance held
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12 January 2012
Mr Graham Perrett The Chair The Standing Committee on Social
Policy and Legal Affairs Parliament House Canberra ACT, 2600 Email:
[email protected] Dear Mr Perrett
SUBMISSION: Inquiry into Residential Strata Title Insurance
1. INTRODUCTION.
This submission has been prepared by
Far North Queensland and is submitted to the House Standing
Committee on Social Policy and Legal
Affairs, which is conducting an independent review into
Residential Strata Title Insurance and related
issues affecting Body Corporate and Unit holders insurance.
This submission mainly relates to the explosive increases in
premium costs of residential strata title
insurance for unit and apartment owners in Far North Queensland
(FNQ). It will cover the following:
Background to Residential Strata Title Insurance and
skyrocketing residential strata title insurance premiums in
regional Queensland including Far North Queensland,
Anti-Competitive Behaviour - Dramatic increases in premiums,
Anti-Competitive Behaviour - Lack of choice and range of policy
classes of insurance,
Lack of Competition in the provision of Residential Strata Title
Insurance,
Residential Apartment/Unit market of FNQ and regional
Queensland,
Impact and Recommendations.
Newspaper article 2011
SUBMISSION NO. 150
mailto:[email protected]
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BACKGROUND.
Residential Strata Title Insurance is a class of insurance that
applies to unit/apartment complexes. It
generally covers building and common contents, as well as legal
liability, fidelity guarantee, personal
accident and office bearer’s liability. The annual premium for a
unit complex is issued to a
Body/Owners Corporation and is subsequently proportioned to each
individual unit holder for
payment.
In recent years there have been excessive increases in premiums,
and limited availability of cover in
relation to residential strata title insurance for the FNQ
region. In fact for
Apartments, a reasonably new complex located at , the
residential strata title
insurance premium increased by 567% from the period 2009-2010 to
2011-2012.
Specifically with regards to the FNQ market, the lack of
competition by the insurance industry as well
as its anti-competitive behaviour in providing residential
strata title insurance has resulted in PRICE
GOUGING with spiraling increases in premiums for this class of
insurance in this region. This situation
is having a severe impact on unit owners, residents, businesses
and the community.
This unfair and unsustainable situation in FNQ has become
untenable for many unit owners in this
sector of the housing market. It has become such a major issue
in this region that it is impacting on
the affordability of units and apartments in the region, rental
levels, unit valuations and prices,
current and future investment in this type of accommodation and
ultimately jobs in building and
constructing new units and apartments and the real estate
industry in general for these properties.
In short given the extremely difficult economic conditions of
FNQ, this market SIMPLY CAN NOT
ABSORB the soaring increases in premiums – for the unit sector
this situation is detrimental to the
affordability of home ownership for units and apartments, rental
prices plus current and future
investment in unit housing stock.
Independent retirees with fixed incomes and unable to afford to
pay the Body Corporate increases
are faced with the prospect of being unable to sell their units
to investors because of the excessive
Body Corporate fees and local government rates that in some
instances represent 80-110% of annual
returns. Investment in the residential sector of our region is
critical for our economy, however if the
current insurance crisis continues this will also fail and the
“follow on” effect will be devastating to all
aspects of the region.
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2. ANTI-COMPETITIVE BEHAVIOUR - DRAMATIC INCREASES IN
PREMIUMS.
I am an owner occupier of a 2 bedroom apartment located at
which
is a 3 storey complex consisting of 12 units and was completed
in 2007. I also own a 2 bedroom
apartment at that is tenanted and is a 6 storey complex of
65
apartments and was completed in 2009.
Both apartment buildings have experienced dramatic increases in
premiums for residential strata title
insurance for the 2011/2012 period.
This situation and trend is clearly demonstrated by the
following table:
INSURANCE PREMIUMS -
Year
Insurance Premium
$
Stamp Duty
Increased Amount
$
Commission paid to Body Corp
Manager $
Percentage Increase on
previous Amt %
2007/2008 8,134.25 567.50 First Premium
no commission
2008/2009 4,766.58 326.41 -3,367.67 593.48 -58%
2009/2010 3,825.48 315.60 -941.10 573.82 -80%
2010/2011 5,187.15 361.90 1,361.67 NIL 135%
2011/2012 16,533.46 1,141.98 11,346.31 2,076.33 318%
NB: Above amounts GST inclusive
NB: No flood cover
INSURANCE PREMIUMS -
Year
Insurance Premium
$
Stamp Duty
Increased Amount
$
Commission paid to Body Corp
Manager $
Percentage Increase
On previous amt %
2009/2010 19,851.10 1,384.97 First avail policy
2010/2011 66,399.49 1,318.18 46,548.36 nil 334%
2011/2012 112,609.66 7,183.64 105,970.17 8,602.52 169%
NB: NB:
Insurance premiums have increased by 567% from the period 2009 -
2012 Above amounts GST inclusive
NB: No flood cover
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HOW THIS INCREASE RELATES TO ME AS AN INDIVIDUAL UNIT OWNER
Body Corporate Premiums
Period Amount $ Increase Increase %
01/10/08-31/12/08 598.32 01/01/09-31/03/09 N/a 01/04/09-30/06/09
N/a 01/07/09-30/09/09 578.33 01/10/09-31/12/09 648.74 70.41
01/01/10-31/03/10 562.99 -85.75 01/04/10-30/06/10 562.99 0
01/07/10-30/09/10 668.25 105.26 01/10/10-31/12/10 668.25 0
01/01/11-31/03/11 560.91 107.34 01/04/11-30/06/11 560.91 0
01/07/11-30/09/11 677.08 116.17 01/10/11-31/12/11 677.08 0
01/01/12-31/03/12 1,285.74 608.66 189%
Body Corporate Premiums -
Period Amount $ Increase $ Increase %
01/11/09-31/01/10 1,193.24 n/a 01/02/10 -30/04/10 1,154.39
-38.85 01/05/10-31/07/10 1,193.71 39.32 01/08/10-31/10/10 1,125.38
-68.33 01/11/10-31/01/11 1,241.03 115.65 01/02/11-30/04/11 1,241.03
0 01/05/11-31/07/11 1,241.03 0 01/08/11-31/10/11 1,212.12 -28.91
01/11/11-31/01/12 1,212.12 0 01/02/12-30/04/12 1,926.60 714.48
158%
Explosive increases in premiums for the 2011/2012 have been
experienced by many unit owners in
complexes in the Cairns region. For example for another unit
complex in Cairns, the unit owners
have had a 427% INCREASE in their insurance premium for 2011.
For the 2012/2013 period Insurers
will likely follow suit by increasing their premiums
substantially in the Strata market which will apply
to the FNQ region and for those unit complexes that are offered
renewal in 2012.
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3. ANTI-COMPETITIVE BEHAVIOUR – LACK OF CHOICE AND RANGE OF
POLICY CLASSES OF
INSURANCE.
The monopolistic conditions in this region with few insurance
firms are driving up premiums to
unreasonable and unaffordable levels, but it is also leading to
a very limited range and choice of
insurances products and classes. The anti competitive market, I
believe, also exists because
companies like , , and have left the market due to the very
aggressive
marketing by when they entered the Strata Title Market in NQ
seven years
ago offering very competitive rates and undercutting many of the
existing insurers. Other companies
have remained in the area but regrettably the excessive pricing
has allowed the establishment of
second tier insurers who for a reduced cost, are offering only
basic insurance packages with some
companies refusing to insure complexes containing holiday
rentals. covers only up to five
million dollar property value; others are imposing excesses on
named cyclone events of 1% of the
insured value of the complex.
In FNQ in the unit/apartment housing market, it is extremely
difficult if not impossible to obtain an
insurance policy which covers floods. This class of insurance is
simply not offered by the few
insurance companies that offer insurance for the unit/apartment
complexes. As a result flooding is
not covered for most of the unit/apartment complexes in this
region and this is of a major concern
particularly given the recent weather conditions and flooding
that has occurred in Queensland.
We simply can’t get flood cover.
4. LACK OF COMPETITION BETWEEN INSURERS OF RESIDENTIAL STRATA
TITLE INSURANCE.
In recent years the FNQ insurance market has dramatically
changed especially with regards to Body
Corporate insurance. Strata owners in FNQ have suffered from a
number of Insurers exiting from the
region in a short period of time. As a consequence there are now
only a few insurance companies
offering this class of insurance to this region resulting in
market concentration and a lack of
competition.
To demonstrate and highlight the dramatic changes in the current
attitude of the major insurers to
Residential Body Corporate Insurance in FNQ provided below is a
summary of these changes in this
market:
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.
This insurer has withdrawn from the Australian Insurance market
for Residential Bodies
Corporate i.e. Residential Strata Title Insurance.
ted.
This company has withdrawn nationally from the Residential Body
Corporate insurance market.
.
This company has increased all its rates for Residential Body
Corporate policies by 25% in
September 2009 and another 35% in March 2010 and has also
withdrawn all policy discounts ,
ranging up to 15%, in March 2010.
has again increased rates by a further 35% in September 2010.
also do not
underwrite any business with a sum insured or asset value over
$20,000,000 and currently has a
new business moratorium for 60 days.
.
This company will no longer underwrite any risk in FNQ with a
value over $6,000,000. Any risk
under this value has a 70% loading to normal rates.
.
The company is reluctant to provide quotations for any risk in
the Far North Queensland region.
.
This company will not underwrite risks higher than $5,000,000
and only with minimal holiday
accommodation.
.
This insurer has applied Named Cyclone Excesses and increased
all premiums and whilst they are
willing to underwrite risks in North Queensland it is at non
negotiable rates . They remain the
most competitive of all "A" Rated insurers.
.
This company will only provide quotations for non holiday
complexes to a maximum value of
$5,000,000.
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5. INSURANCE COMMISSIONS PAID TO BODY CORPORATE MANAGERS –
CONFLICT OF INTEREST
The fact that insurance policies are commissionable to Body
Corporate Management companies
who receive considerable percentage commission payments from
insurers for written business,
is an area that should be investigated as this is undoubtedly a
conflict with the role of the Body
Corporate Manager, who should be working in the best interest of
the Body Corporate client and
not recommending or “selling out” to the company who will pay
the highest commission. If
commission is received, this should be credited to the policy
holders Body Corporate account
not the Body Corporate managers consolidated revenue account to
assist in countering premium
increases.
6. IMPACT
The anti-competitive behaviour by insurance companies (dramatic
increases in premiums) and a lack
of competition in the provision of Residential Strata Title
Insurance is causing significant impacts in
this region some of which include:-
A worrying concentration of market share in the provision of
Residential Strata Title Insurance in
FNQ which has had a dramatic impact of the price and
availability of cover for this class of
insurance.
Unit and apartment owners, residents and tenants and investors
have been affected by
escalating insurance premiums and, in some cases, have been
unable to find cover or are now
deciding not to renew their cover for this class of
insurance.
This situation is now impacting on the owners, renters and
investors of the 23,772
units/apartments that currently exist in FNQ and a further
14,228 units/apartments which is the
additional stock that is expected to be built in the future.
It is reasonable to deduce that this situation is also impacting
on unit and apartment owners and
this sector of the housing market in other regional areas of
Queensland including North
Queensland (Townsville region) and Central Queensland (Mackay
region).
To further highlight to you the severity of this situation
please find attached a copy of recent
article that featured in the Cairns Post on Wednesday 26 January
2011.
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7. FNQ AND REGIONAL QUEENSLAND RESIDENTIAL APARTMENT/UNIT
MARKET
In terms of the residential apartment/unit market of FNQ (Cairns
region) and regional Queensland
the following information is provided:
Number of existing units/apartments - 23,772.
Population - Number of people who live in an existing
unit/apartment – 71,316 people.
Potential units/apartments - additional stock to be built in the
future –- 14,228.
Population – additional number of people who will live in a
unit/apartment to be built in the
future – 42,684 people.
Future number of units/apartments - total number of
units/apartments as provided for under
the local planning scheme – 38,000.
Future total number of people living in units/apartments –
114,000 people.
North Queensland (Townsville region):-
Number of existing units/apartments – 26,339 (approx).
Total population 181,743 people – people in units-79,018 people
(approx).
Central Queensland (Mackay region):-
Number of existing units/apartments – 20,516 (approx).
Total population 141,567 people – people in units- 61,550 people
(approx).
8. RECOMMENDATIONS.
Given the above circumstances and the catastrophic insurance
premium increases in this region
which occurred with immediate effect in 2011, I strongly appeal
to you to consider the following
recommendations:
1. Immediately suspend and place an embargo of all premium
increases for Residential Strata Title
Insurance coverage in 2012 by all insurance companies offering
this insurance class in FNQ and in
regional Australia.
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2. Urgently investigate the provision of Residential Strata
Title Insurance in this region and regional
Australia more broadly including legislation such as the Body
Corporate Act which requires this
type of insurance coverage for unit and apartment complexes.
3. Consider developing an entirely new insurance model which
reflects insurance needs and risks
but also takes into consideration all of the new building and
design codes and planning and
development schemes which are responding to risks especially
natural disasters in regional
Queensland. The current market driven insurance model is
problematic which is clearly
demonstrated by insurance companies having little interest in
providing affordable insurance to
consumers and property owners in regional Queensland.
4. Investigate and assess the possible development and
establishment of an insurance company
that can cater for the needs of regional Australia and this
region in particular ( where the
established and larger insurance companies have vacated the
market). Such a model could be
based on and be similar to the business model used for community
banks and building societies
etc…
5. Investigate and assess the possible development and
establishment of other insurance models
such as the Natural Disaster Insurance model used in in New
Zealand which could be designed to
cover a range of classes of insurance such as Residential Strata
Title Insurance.
6. Undertake a review of the provisions of the Competition and
Consumer Act 2010, to determine
uncompetitive conduct of insurance companies and any protection
available to apartment and
unit owners.
7. Consider the tax deductibility status of this insurance
premium which would allow unit and
apartment owners to deduct the cost of this insurance premium
from their tax.
8. The consideration by State Government to reduce the stamp
duty costs associated with Strata
Building Insurance policy premiums or use these funds as credits
for applied government taxes or
charges to Body Corporates or alternatively returned as a
grant/incentive when the provision of
regulatory changes to any facilities within complex or a part of
the building are required by law.
ie. pool fencing
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This is a very serious issue which is having a major impact on
numerous aspects of these communities
in the Far NQ region and if these exorbitant Strata Insurance
costs continue in this current
uncontrolled manner, the future both economic and lifestyle, of
thousands of residents is at further
risk and the consequences will be devastating.
I look forward to your favourable consideration of the issues
raised and recommendations outlined in
this submission.
I am available to discuss the contents of this document with you
at a mutually convenient time.
Yours faithfully.